Contributed by: Angela Palacios, CFP®
As market volatility rears its ugly head this summer, this is a good reminder about trying to time the market. Investor concern has been ramping up recently over concerns from Greece and China. Investors are wondering if they should sit on the sidelines and wait out these potential crises. As you consider your strategy, take a look at this chart for some historic reference on missing out on the market’s best days for returns:
Market timing is extremely difficult. Decisions have to be made perfectly on both the buy and sell side to be profitable and most don’t even come close to perfection. The impact of lower long term returns by missing out on the 10 best days in the S&P 500 is eye opening. Over the past 20 years, it meant giving up nearly 4% points in long term annualized returns. What is even more astounding, and a very important reminder, is 6 of the 10 best days occurred within 2 weeks of the 10 worst days. The worst days are usually the days investors want to sell out. If you do sell, can you possibly have the courage to get back in in time not to miss these 10 best days? If you get distracted by vacation, busy at work or with kids and are not paying attention for even a few days, percentage points could slip away very easily. That makes it difficult to reach your long term goals. While it may feel good to sell and sit in cash “for a while”, when faced with volatility, remember what it could cost!
Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.
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